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Welfare Effects of Tariff Reduction Formulas

Author

Listed:
  • Jan Guldager Jorgensen

    (University of Southern Denmark)

  • Philipp J.H. Schröder

    (Aarhus School of Business)

Abstract

WTO negotiations rely on tariff reduction formulas. It has been argued that formula approaches are of increasing importance in trade talks, because of the large number of countries involved, the wider dispersion in initial tariffs (e.g. tariff peaks) and gaps between bound and applied tariff rates. This paper resents a two country intra-industry trade model with heterogeneous firms subject to high and low tariffs. We examine the welfare effects of applying three different tariff reduction formulas proposed in the literature i) a proportional cut, ii) the Swiss formula and iii) a compression formula. No single formula dominates for all conditions. The ranking of the three tools depends on the degree of product differentiation in the industry, and the achieved reduction in the average tariff.

Suggested Citation

  • Jan Guldager Jorgensen & Philipp J.H. Schröder, 2005. "Welfare Effects of Tariff Reduction Formulas," International Trade 0506006, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpit:0506006
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    References listed on IDEAS

    as
    1. Joseph Francois & Will Martin, 2003. "Formula Approaches for Market Access Negotiations," The World Economy, Wiley Blackwell, vol. 26(1), pages 1-28, January.
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    3. Jan Jørgensen & Philipp Schröder, 2005. "Welfare-ranking ad valorem and specific tariffs under monopolistic competition," Canadian Journal of Economics, Canadian Economics Association, vol. 38(1), pages 228-241, February.
    4. Anthony Venables, 1994. "Integration and the export behaviour of firms: Trade costs, trade volumes and welfare," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 130(1), pages 118-132, March.
    5. Daniel Gros, 1987. "Protectionism in a Framework with Intra-Industry Trade: Tariffs, Quotas, Retaliation, and Welfare Losses (Le protectionnisme dans un cadre faisant intervenir les échanges de produits analogues: droit," IMF Staff Papers, Palgrave Macmillan, vol. 34(1), pages 86-114, March.
    6. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
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    More about this item

    Keywords

    Welfare; monopolistic competition; intra-industry trade; wto trade liberalization; formula approaches;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration

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